TABL2751 2019-2 Lecture Slides Week 1

TABL2751 – Business Taxation
TERM 2, 2019
Week 1 Lecture
3 June 2019
Course Overview
Introduction to the Australian Tax System
Copyright 2019 School of Taxation & Business Law and Kathrin Bain
Welcome to TABL2751 – Business Taxation
• My details:
Kathrin Bain
Quad 2066
Phone: 9385 9541
E-mail: k.bain@unsw.edu.au
Consultation: Mondays 12:00pm – 1:00pm (or by appointment)
Course overview
• Summary of course:
• The Australian taxation system with a focus on income taxation
• Introduction to other Australian taxes such as fringe benefits tax (FBT) and goods and
services tax (GST)
• You should leave this course having a broad understanding of how the income tax system
applies to individuals and entities (partnerships, trusts, companies)
• Most topics we cover can be studied further in other tax subjects offered by the School of
Taxation and Business Law
• This course is NOT just about numbers
• Course aims / learning outcomes: refer to course outline
Course overview
• Lectures: Mondays: 9am – 11am
(Sorry! I didn’t have a say in the lecture time)
Lectures are recorded, however this is NOT a substitute for attending.
• Tutorials: either Tuesday / Wednesday / Thursday: please attend your
enrolled tutorial.
• Lectures and tutorials run in Week 1, and in Weeks 3 to 10.
• There are NO classes in Week 2.
Course overview - resources
• Course website (Moodle)
• Tutorial material
• Lecture notes
• Videos - please watch before the relevant class
• Textbooks: Understanding Tax Law AND Concise Tax Legislation
• Reading list on Moodle
• Additional resources: e.g. case books
• Online resources:
• Austlii / CCH / ATO website
Course overview - assessment
• Tutorials: (Must attend 80% of tutorials)
• Quizzes: 2 x 10% each.
• These will be held at the BEGINNING of your tutorial class in Week 4 and Week 9
• Mix of short-answer and multiple choice. 20 minutes each.
• Closed book (handout of tax rates provided if required).
• Quiz 1: Week 4: Will cover topics up to and including income (i.e. Wk 1 & Wk 3 lectures and tutorials)
• Quiz 2: Week 9: Will cover topics up to and including partnerships & trusts (i.e. Wks 4 – 7 lectures; Wks
5 – 8 tutorials).
• Response to tutorial problem: 5%

• Allocated in Week 1 tutorial
• General tutorial participation: 5%

• Participating in general tutorial discussions; answering class discussion questions etc.
Course overview - assessment
• Assignment: 20%
• Monday 15 July, 6:00pm (lodge via Turn it in)
• Hypothetical style problem (Income / CGT / Deductions)
• Final exam: 50%
• University exam period
• Must achieve 40% on final exam to pass the course
• Open book: NO restrictions on written/printed material
• Hypothetical style questions
• Covers entire course but focus will be on later topics
Course overview – course schedule
• Week 1: Overview of Australian tax system
• Week 3 – 4: Income (including capital gains)
• Weeks 5 – 6: Deductions
• Weeks 7 – 8: Entities
• Week 9: Employees (FBT and superannuation)
• Week 10: GST
Course overview – policies and support
• Please review this section of the course outline.
• It contains (by way of example):
• Information about plagiarism and academic integrity
• Student responsibilities and conduct such as workload, general conduct etc
• Policy for special consideration
• Student resources and support (e.g. business student centre, educational
support, disabilities services, counselling services).
Introduction to Taxation
“In this world nothing can be

said to be certain, except death
and taxes.”
Benjamin Franklin, 1789
What is a tax?
• OECD: Defines a tax as a:
“compulsory, unrequited payments to
general government. Taxes are
unrequited in the sense that benefits
provided by government to taxpayers
are not normally in proportion to their
payments”.
Why tax?
• Why do governments impose taxation?
• Overall purpose of taxation is to raise revenue
• How much revenue? What goods/services should government provide?
• Social goods:
• Joint (non-rival) consumption and non-excludability
• Example: street lighting.
• Merit goods:
• Beneficial to the user
• Positive externalities (benefits to others)
• Examples: health, education
• Other reasons to tax?
• Social engineering? (Eg: Sin taxes) Should the government be using tax for these purposes?
Where do your taxes go?
This is a sample of a “tax receipt” that
most individual tax payers will receive
once their tax return has been lodged
and processed.
https://www.ato.gov.au/Individuals/Lo
dging-your-tax-return/In-detail/Tax-
receipt/
Tax Policy Objectives
• What makes a ‘good’ tax? How should be evaluate a tax?
• Generally accepted that a tax should be:
• Simple: compliance and administrative costs should be low
• Compliance costs: cost taxpayers face in complying with their taxation obligations (e.g.
accountant / legal advice / tax agent fees / time costs)
• Administrative costs: government costs (e.g. cost of ATO)
• Equitable:
• Vertical equity: taxpayers in a different position should be treated differently (e.g.
progressive tax rates for individuals)
• Horizontal equity: like taxpayers should be treated alike (e.g. income taxed at the same
rate regardless of whether it is from employment, business, investment)
• Efficient – (neutrality) tax shouldn’t affect decision making
Overview of the Australian income tax system
• Federal income tax introduced in Australia in 1915
• Taxation is a “concurrent power” – both State and Federal government can tax
• Section 51 allows federal government to pass laws in respect of taxation
• Commonwealth (federal) tax: (focus of this course)
• E.g. income tax (direct tax) / goods and services tax (indirect tax)
• Administered by the Australian Taxation Office (ATO)
• State taxes:
• indirect taxes, e.g. land tax, stamp duty, payroll taxes
• Administered by the Office of State Revenue (OSR) in each state
Copyright 2019 School of Taxation & Business Law and Kathrin

Bain
Sources of tax law
• Statute law (legislation)
• Income Tax Assessment Act 1936 (Cth): ITAA36
• Income Tax Assessment Act 1997 (Cth): ITAA97
• Why two acts? Tax Law Improvement Project
• Income Tax Rates Act 1986 (Cth)
• Fringe Benefits Tax Assessment Act 1986 (Cth) (FBTAA)
• A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act)
• Taxation Administration Act 1953 (Cth)

Bain
Sources of tax law
• Case law
• Decisions of courts
• ‘Interpretation’ of legislation
• Administrative Appeals Tribunal  Federal Court (single judge)  Full Federal
Court (3 judges)  High Court (if special leave granted) (7 Judges)
• Focus of Week 1 tutorial
• Tax Office Rulings
• Informal source of ‘law’
• ATO’s interpretation of the law
• Different types of rulings: public / private / product / oral
Who must pay income tax?
• Income tax payable by each
individual and company (and some
other entities), regardless of
residency status: s4-1 ITAA97
• Individuals: We do not have “joint” or
“family” filing in this country. I.E. when
you lodge your tax return, it is YOUR tax
return only, you cannot join your
spouse/partner/other family members
into the one tax return
• Companies
• Other entities (e.g. trusts)
Jurisdictional issues
• Residents: taxed on worldwide income (subject to exceptions)
• Non-residents: taxed on Australian source income (subject to
exceptions)
• See ss 6-5 & 6-10 ITAA97
• Different tax rates apply to residents and non-residents (individuals)
• Residency for tax purposes is NOT the same as citizenship /
permanent residency for immigration purposes
Tax year
• Tax or financial year: 1 July – 30 June each year
• EG: The 2018 tax year refers to the year: 1 July 2017 – 30 June 2018
• The 2019 tax year refers to the year: 1 July 2018 – 30 June 2019
• We will be using the 2019 tax year for purposes of tutorial questions etc.
The tax formula
• s4-10 ITAA97: Income tax =
(Taxable income x Rate) – Tax offsets
• s4-15 ITAA97: Taxable income =

Assessable income – Deductions
Taxable income =
Assessable income less Deductions
Ordinary income Specific deductions

Statutory income
Allowed deductions
Disallowed deductions
CGT
Positive Royalties General deductions
propositions Employee benefits
Non-cash business benefits
Negative
propositions Negative limbs
Positive limbs
Income
• Assessable income includes ordinary income and statutory income
• Ordinary income: income according to ordinary concepts
• Not specifically specified in legislation
• Examples: salary and wages, business income, interest income; rent
• Statutory income:
• Income that is specifically included in a provision of legislation
• Example: net capital gain

Bain
Income
• Exempt income
• s6-20 ITAA97: An amount of ordinary income or statutory income is exempt income if it is
made exempt from income tax by a provision of this Act or another Commonwealth law.
• Sub-div 11-A
• Examples: certain scholarships / compensation from personal injury
• Non-assessable non-exempt income

• s6-23 ITAA97: An amount of ordinary income or statutory income is non-assessable non-
exempt income if a provision of this Act or another Commonwealth law states that it is not
assessable income and not exempt income.
• Sub-div 11-B
• Examples: certain parts of employment termination payments / certain types of foreign
income

Bain
Deductions and offsets
Deductions
• See Div. 8 ITAA97
• General deductions s8-1 ITAA97
• Specific deductions s8-5 ITAA97
Offsets
• See Div. 13 ITAA97
• Essentially tax credit/rebate
• Reduce tax payable
• Refundable vs. non-refundable
Tax rates
Resident Individuals – 2019 tax year
(1 July 2018 – 30 June 2019)
TAXABLE INCOME TAX ON INCOME
Less than $18,200 NIL
$18,201 to $37,000 19c for each dollar over $18,200
$37,001 to $90,000 $3,572 + 32.5c for each dollar over $37,000
$90,001 to $180,000 $20,797 + 37c for each dollar over $90,000
$180,001 + $54,097 + 45c for each dollar over $180,000
Above rates do not include:

• Medicare levy/surcharge; HELP repayments; Low / middle income tax offsets
• Refer to handout on Moodle
Tax rates
Non-resident individuals – 2019 tax year
(1 July 2018 – 30 June 2019)
TAXABLE INCOME TAX ON INCOME

Less than $90,000 32.5c for each dollar over NIL
$90,001 to $180,000 $29,250 + 37c for each dollar over $90,000
$180,001 + $62,550 + 45c for each dollar over $180,000
Calculation of tax payable
• Refer to example in your tutorial program (Week 1)
Steps to follow
• Step 1: Calculate assessable income
• Step 2: Calculate deductions
• Step 3: Calculate taxable income
• Step 4: Multiply taxable income by relevant tax rates
• Step 5: Calculate tax offsets
• Step 6: Calculate income tax liability
• Step 7: Calculate Medicare Levy (and surcharge if relevant)
• Step 8: HELP repayments (if relevant)
• Step 9: Calculate total income tax / Medicare / HELP
Company tax rates
• Apply to both resident and non-resident companies
• Base rate entity: 27.5% of taxable income
• All other companies: 30% of taxable income
• Base rate entity is a company that satisfies both of the following
requirements:
• Has an annual turnover of less than $50 million (for the 2018-19 year); and
• No more than 80% of their assessable income is passive income (e.g.
dividends, royalties, rent, interest, net capital gains).
• Note: For the 2015 tax year (and earlier): all companies had a flat tax rate of 30%
Returns and assessment
• See Chapter 16 of text (optional reading)
• Requirement to lodge annual tax return: S161(1): ITAA1936
• Includes companies / individuals
• Some limited exceptions for individuals
• Notion of self-assessment:
• ATO processes return based on information you provide
• ATO provides taxpayer with notice of assessment – shows tax refundable or
payable
• Return may be reviewed at a later date (generally 2 years for individuals)
Where to from here?
• Make sure you attend your tutorial this Week
• Remember: no lectures or tutorials in Week 2
• Before the Week 3 lecture, watch the following videos:
• Research: Using Austlii & CCH
• Role and function of key actors in Australian taxation system (optional)
• Income
• Existence of a business or income producing activity

TABL2751 2019-2 Lecture Slides Week 1

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TABL2751 – Business Taxation

• Course aims / learning outcomes: refer to course outline

• Response to tutorial problem: 5%

• General tutorial participation: 5%

“In this world nothing can be

Copyright 2019 School of Taxation & Business Law and Kathrin

Copyright 2019 School of Taxation & Business Law and Kathrin

• s4-15 ITAA97: Taxable income =

Ordinary income Specific deductions

Copyright 2019 School of Taxation & Business Law and Kathrin

• Non-assessable non-exempt income

Copyright 2019 School of Taxation & Business Law and Kathrin

$90,001 to $180,000 $20,797 + 37c for each dollar over $90,000

$180,001 + $54,097 + 45c for each dollar over $180,000

Above rates do not include:

TAXABLE INCOME TAX ON INCOME

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